S.R.Ratheesh vs. The Secretary

Facts

The petitioner, S.R. Ratheesh, proprietor of M/s. Adhithya Aqua Industries and Adhithya Bharat Gas Agencies, filed two writ petitions challenging orders dated March 13, 2019, issued by the Branch Manager of Central Bank of India. The petitioner sought to quash these orders and direct the bank to restructure their MSME term loans and cash credit accounts based on Reserve Bank of India (RBI) Notification dated January 1, 2019. The petitioner contended they were registered MSMEs and entitled to restructuring, thus their accounts should not have been classified as Non-Performing Assets (NPAs). The respondent bank argued that the petitioner's loan accounts did not meet the RBI guidelines for restructuring and were classified as NPAs on May 29, 2018, allowing the bank to proceed under the SARFAESI Act.

Held

The Court held that the relief sought by the petitioner could not be granted. The primary reason was that the Reserve Bank of India (RBI) Circulars, both the one dated February 7, 2018, and the subsequent one dated January 1, 2019, explicitly required the borrower's account to be classified as a standard asset, not a Non-Performing Asset (NPA), to be eligible for the benefits of restructuring. The respondent bank had categorically stated in its counter affidavit that the petitioner's account was classified as an NPA on May 29, 2018. Furthermore, the bank's reply dated March 13, 2019, indicated that SARFAESI proceedings were initiated after this NPA classification, and secured assets were brought for auction on December 19, 2018. The Court also found from the statement of accounts that the petitioner had not complied with the condition regarding the payment of outstanding amounts as stipulated in the RBI Circulars. Therefore, the petitioner was not entitled to the restructuring of their accounts, and consequently, the prayer for a certiorarified mandamus for restructuring was dismissed.

Key Issues

1. Whether the petitioner's loan accounts, classified as Non-Performing Assets (NPAs) by the respondent bank, are eligible for restructuring under the Reserve Bank of India (RBI) Notification dated January 1, 2019, and a prior RBI Circular dated February 7, 2018? (Question of law). Petitioner's arguments: The petitioner contended that they met all the conditions stipulated in the RBI Circular dated February 7, 2018, for their loan accounts to be classified as standard assets and subsequently be eligible for restructuring. They argued that the bank wrongly classified their accounts as NPAs and initiated recovery proceedings. They relied on the conditions outlined in the RBI circular, including being registered under GST, aggregate exposure not exceeding Rs. 250 million, accounts being standard as of August 31, 2017, and timely payments. Revenue/State's arguments: The respondent bank argued that the petitioner failed to satisfy the conditions of the RBI circulars. Specifically, they contended that the loan accounts were already classified as NPAs on May 29, 2018, prior to the restructuring period. Furthermore, the bank asserted that the petitioner did not comply with the requirement for payments to be made within 180 days of their original due dates for amounts overdue as of September 1, 2017, and payments due between September 1, 2017, and January 31, 2018. The bank also noted the petitioner's aggregate exposure was Rs. 8 crores.